Correlation Between San Juan and SM Energy

Can any of the company-specific risk be diversified away by investing in both San Juan and SM Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining San Juan and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between San Juan Basin and SM Energy Co, you can compare the effects of market volatilities on San Juan and SM Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in San Juan with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of San Juan and SM Energy.

Diversification Opportunities for San Juan and SM Energy

0.28

Correlation Coefficient

San Juan  SM Energy

Modest diversification

The 3 months correlation between San and SM Energy is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and San Juan is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on San Juan Basin are associated (or correlated) with SM Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Energy has no effect on the direction of San Juan i.e., San Juan and SM Energy go up and down completely randomly.

Pair Corralation between San Juan and SM Energy

Considering the 90-day investment horizon San Juan Basin is expected to under-perform the SM Energy. In addition to that, San Juan is 1.06 times more volatile than SM Energy Co. It trades about -0.05 of its total potential returns per unit of risk. SM Energy Co is currently generating about 0.04 per unit of volatility. If you would invest  3,201  in SM Energy Co on October 15, 2024 and sell it today you would earn a total of  1,134  from holding SM Energy Co or generate 35.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

San Juan Basin  vs.  SM Energy Co

San Juan Basin

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in San Juan Basin are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward-looking indicators, San Juan may actually be approaching a critical reversion point that can send shares even higher in February 2025.

SM Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, SM Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with San Juan and SM Energy

The main advantage of trading using opposite San Juan and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if San Juan position performs unexpectedly, SM Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SM Energy will offset losses from the drop in SM Energy's long position.

The idea behind San Juan Basin and SM Energy Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.